ZAITER v. RIVERFRONT COMPLEX, LTD., et al.

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After the defendants failed to participate in
discovery, the circuit court entered a $50,000 default judgment.
The Court of Appeals affirmed. We affirm in part and reverse in
part. The circuit court did not err when it entered a default
judgment with regard to liability. However, we remand this case
to the circuit court to allow the defendants the opportunity to
have a jury decide the question of damages.

I

Plaintiff Marcy J. Zaiter worked for defendant
Riverfront Complex, Ltd., as an x-ray technician. She says she
was fired because she was pregnant. Riverfront says she was
discharged as an economic move, because her salary was greater
than the x-ray billings that were being generated from her work.

On October 8, 1996, Ms. Zaiter filed a
complaint in which she alleged that Riverfront had discharged her
in violation of the Civil Rights Act. MCL 37.2202; MSA
3.548(202). The complaint included a demand for a jury trial, and
was accompanied by interrogatories and a request for the
production of documents.[1]

Riverfront answered the complaint, and stated
its reliance on Ms. Zaiter’s demand for a jury trial. Signing the
answer, counsel for Riverfront provided a business address on
Edward Avenue in Madison Heights.

By spring of the following year, Riverfront had
not answered the interrogatories or the request for the
production of documents. Ms. Zaiter’s attorney wrote to
Riverfront’s lawyer on February 4, 1997, demanding answers by
February 14. This and all other correspondence mentioned in this
opinion were sent to Riverfront’s lawyer at her Edward Avenue
address in Madison Heights.

Ms. Zaiter’s attorney wrote again on March 7 to
confirm a March 6 telephone conversation in which answers had
been promised by March 14. The letter also included a request for
production of two Riverfront employees for deposition.

On April 2, Ms. Zaiter’s attorney filed a
motion to compel answers to the interrogatories and document
requests. A notice of hearing was sent to defense counsel. Like
the correspondence from Ms. Zaiter’s lawyer, each notice of
hearing mentioned in this opinion bore defense counsel’s Edward
Avenue address in Madison Heights.

The circuit court’s ruling was an April 14
order that required answers by April 24. Since defense counsel
did not appear for the hearing, Ms. Zaiter’s lawyer mailed a copy
of the order to her on April 14, and enclosed a notice that the
two employees would be deposed on April 23.

An April 23 letter to defense counsel recites
that the depositions were adjourned to May 9 at Ayour
request" and confirms a telephone conversation in which
defense counsel promised Ms. Zaiter’s lawyer that she would
provide answers to the discovery requests before the May 9
depositions.

On May 9, Ms. Zaiter’s lawyer faxed a letter to
defense counsel. Pursuant to a May 8 conversation, the
depositions again had been adjourned. The letter also confirmed
defense counsel’s promise to provide the overdue answers by May
12.

Ms. Zaiter’s attorney filed a motion for
default on June 24, mailing notice of the hearing to defense
counsel. The attorney recited the broken promises regarding
discovery and noted the court’s April 14 order, and also
explained that June 10 had been the third notice date for
depositions, but that defense counsel and her client’s employees
had not appeared. Ms. Zaiter’s counsel asked for default judgment
and for an award of $2,5000 in costs.

The circuit court considered the motion on June
30. Its conclusion was reflected in an order that was not entered
until July 15, because entry was delayed so that Ms. Zaiter’s
lawyer could mail to defense counsel the seven-day notice that is
part of the procedure set forth in MCR 2.602(B)(3). The July 15
order required Riverfront to respond to the interrogatories and
the request to produce by July 11.[2]Failing that, a default judgment would be entered. The
court also ordered Riverfront to pay $250 in sanctions by July
29.

When no answers were provided, Ms. Zaiter’s
attorney filed a July 25 motion for default judgment. Two notices
of hearing were mailed to defense counsel.

The circuit court heard the motion on September
8. Defense counsel did not appear and thus did not assert
Riverfront’s right to a jury trial on damages. At a short hearing
on damages, Ms. Zaiter testified that she had suffered $18,000 in
economic damages, and emotional stress as well. She had been
diagnosed with depression, and her pregnancy "almost led to
a miscarriage." Counsel asked for judgment in the amount of
$50,000, a figure that the court later attributed, inaccurately,
to a mediation evaluation.

At the conclusion of the hearing, the circuit
court granted the request orally, but asked that entry of the
written judgment be deferred until the seven-day entry procedure
was followed again. Thus, Ms. Zaiter’s lawyer sent defense
counsel notice of the pending entry of the default judgment. No
objection was received, and the court entered the $50,000 default
judgment on September 22.[3]Ms. Zaiter’s attorney faxed a
copy of the judgment to defense counsel.

On October 9, Riverfront moved to set aside the
default and the default judgment. In the motion, defense counsel
stated that she had received no correspondence from Ms. Zaiter’s
attorney since the May 9 fax; nor had she received any of the
motions or orders. Counsel suggested that the problem might lie
in the court’s records, which showed a former business address.
Counsel did not explain why correspondence mailed to her Edward
Avenue address in Madison Heights would go unanswered. She said
that there was good cause to set aside the default judgment and
that Ms. Zaiter’s suit—"a case of questionable
liability"—should be heard on its merits.

The circuit court heard Riverfront’s motion on
October 27. Defense counsel said she could not explain her
failure to receive mail at her current address, though she
thought perhaps the problem was that the mail had been
misdirected to another business on the same premises. She said
that, throughout the same period, she had been providing diligent
representation of Riverfront in an unrelated matter, and that
there would have been no reason for her to neglect the present
suit.

Defense counsel also stated to the court her
"belief" that she had answered the October 1996
discovery requests at some prior point, though she could not
produce copies of answers or a proof of service. She promised to
look when she returned to her office.

The court ruled on October 29, 1997. Before the
court delivered its opinion, defense counsel told the court that
a search of her files revealed that she had sent the answers back
on May 12. Unfortunately, she had sent them to an attorney who
had no role in this case—counsel for a party involved in
unrelated litigation with Riverfront in district court. She also
had sent the answers to the district court. So far as she knew,
neither set of misdirected answers had ever been returned to her.[4]

The court thanked defense counsel for that
information, and then delivered its opinion, concluding:

Now, it has been five months since defense
counsel last made contact with the plaintiff,[5]
and they have stated that the lack of mail failed to give them
notice of events or her need to contact plaintiff’s counsel.
However, as the Court has gone through the file and received oral
argument Monday, plaintiff appears to have sent all of the mail
to the Edwards Road address, which defendant claims is counsel’s
correct address. It’s exactly this long period of time without
contact which should have at least put defendant’s counsel on
notice of a need to update itself with the status of the case,
even—or—either through placing a phone call to plaintiff’s
counsel or to this court.

An attorney certainly has an ethical duty to
act with reasonable diligence and promptness in representing a
client according to Michigan Rules of Professional Conduct.
Defendant’s attorney allowed five months to pass without an
attempt to contact plaintiff or this court.

Defendant offers as an explanation for her lack
of contact, that control over this case, as nonreceipt of mail.
She asserts that this is good cause and that a meritorious
defense exists. However, this Court is convinced that the receipt
of mail should not be the only method whereby an attorney should
be prompted to keep abreast of the progress and status of a case.
The purpose of a default judgment is to discourage attorneys from
failing to represent their clients in a reasonably diligent and
prompt manner. Unfortunately, it has the effect of adjudicating
matters not on the merits alone. However, it is appropriate in
specific circumstances and, unfortunately, the Court believes
that this is one of them.

This Court makes—takes no pleasure in denying
a motion to set aside a default judgment, and counsel has
appeared here today and she has been candid enough to indicate
that the interrogatories appear to have been prepared and they
may have inadvertently been sent to another court and they may
very well have been sent to another attorney. Now why those
things didn’t come back to her office, or this court, or the
other attorney, I am not sure. It’s an unfortunate situation, and
counsel has been respectful each time she has appeared here.

It’s a difficult measure to be taken, but it is
the ruling of the Court that the Motion to Set Aside the Default
Judgment should be denied.

On November 18, the circuit court entered an
order denying the motion to set aside the default judgment.

Riverfront next filed a December 1 motion,
asking the circuit court to Areconsider its prior denial of
Defendants’ Motion, insofar as the Court must preserve
Defendants’ right to a trial by jury on the issue of
damages." Riverfront’s motion was based on Wood v DAIIE,
413 Mich 573; 321 NW2d 653 (1992).

Reconsideration was denied by the circuit court
in a January 15, 1998 opinion/order.[6]

The setting aside of a default or a default
judgment is governed by MCR 2.603(D)(1), which provides:

A motion to set aside a default or a default
judgment, except when grounded on lack of jurisdiction over the
defendant, shall be granted only if good cause is shown and an
affidavit of facts showing a meritorious defense is filed.

In the present case, the circuit court and the
Court of Appeals found no good cause. For example, in denying
Riverfront’s motion for reconsideration, the circuit court said
that the lengthy period without contact from opposing counsel
should have put defense counsel on notice that something was
awry. Likewise, the Court of Appeals majority concluded that good
cause had not been shown:

Under these circumstances we conclude that the
circuit court did not abuse its discretion in finding that
defense counsel unjustifiably neglected the instant case when she
failed over a five-month period to make contact with plaintiff’s
counsel of any kind, or otherwise investigate the status of the
case.

The dissenting judge said that "[w]ithout
some specific information or record support of docket management
procedures, local rules, and prevailing time frames in the
Genesee Circuit Court, I would say that the lack of contact
between an attorney and the opposite side or the court for a
period of four or five months is not sufficient ground for entry
of a default against the attorney for failure >to diligently
pursue and defend a case.’"

We will not pause long on this aspect of the
case. Our review is for clear abuse of discretion,[8]
and we find no such abuse in this case. While we are not
unsympathetic to the plight of an attorney betrayed by glitches
in mail delivery, this case involves more than the occasional
misdelivery of a piece of mail.

Various letters and notices of hearing were
mailed to defense counsel at her correct address in Madison
Heights, all to no effect. This bundle of mail was necessitated
by counsel’s year-long failure to provide Ms. Zaiter’s lawyer
with answers to discovery requests that had been tendered with
the complaint. The eventual explanation that the answers had been
mailed five months earlier to an attorney in an unrelated case
provides little help—counsel herself acknowledged at the
October 29 proceedings that this disclosure "I suppose in
many senses increases my culpability in this matter."

We have no doubt that real problems can arise
as documents are transmitted by mail. On this record, however,
the prolonged and repeated failure to receive mail, together with
the other circumstances of this case, led the circuit court to
conclude that Riverfront had failed to demonstrate good cause for
setting aside the default judgment.[9] In that conclusion,
we can find no abuse of discretion.

III

This case also presents the issue whether the
Riverfront can obtain a jury trial on damages. As the parties and
the lower courts have observed, this question was treated at
length in our 1992 decision in Wood.

The defendant in Wood was DAIIE. It
failed to respond timely to proper discovery requests, resulting
in a default and, after a further hearing, a default judgment.
DAIIE did appear for the default judgment hearing, but the court
refused to allow it to participate. 413 Mich 577.

With regard to whether DAIIE had a right to a
jury trial in Wood, this Court noted that DAIIE had
requested a jury and had not waived that right. Thus, the issue
was whether the default functioned as a waiver. This Court held
that it did not:

We hold only that a defaulting party who has
properly invoked his right to jury trial retains that right if
a hearing is held to determine the amount of recovery. It is
important, therefore, to ascertain when such a hearing is
required. [413 Mich 583-584 (emphasis in original).]

This Court then examined GCR 1963, 520 to
determine when such a hearing is necessary. That rule is the
predecessor of MCR 2.603(B)(3)(b),[10] which provides:

If, in order for the court to enter judgment or
to carry it into effect, it is necessary to

(i) take an account,

(ii) determine the amount of
damages,

(iii) establish the truth of an
allegation by evidence, or

(iv) investigate any other matter,

the court may conduct hearings or order
references it deems necessary and proper, and shall accord a
right of trial by jury to the parties to the extent required by
the constitution.

From there, this Court moved to the principal
holding of Wood:

However, once the trial court determines that a
further proceeding is necessary, the rule mandates "a right
of trial by jury to the parties when and as required by the
Constitution".[11] As noted above, the constitutional requirement is but a
circular reference to the court rules. The constitutional
provision is repeated here: "The right of trial by jury
shall remain, but shall be waived in all civil cases unless
demanded by one of the parties in the manner prescribed by
law." Const 1963, art 1, ‘ 14.

Thus, the trial court in the case at bar,
having determined that a hearing was necessary on the question of
damages, was obliged to accord defendant its properly preserved
right to jury trial. [413 Mich 585 (emphasis in original).]

When it denied reconsideration in the present
case, the circuit court explained that it had exercised
discretion to determine whether a hearing was necessary to
determine damages. There being no such necessity, there was no
need for a trial by jury.

The Court of Appeals majority noted that the
circuit court had conducted a hearing on damages,[12]
and therefore Riverfront’s "properly preserved right to a
jury determination on the issue of damages must be
recognized." The majority affirmed nonetheless. It relied on
the failure of Riverfront to appear at the hearing to assert the
right to a jury trial, and Riverfront’s failure to raise this
issue in its motion to set aside the default judgment.

Noting the similarities between this case and Wood,
the dissenting judge characterized Riverfront’s Wood-based
argument as "compelling."

On this point, we agree with the dissent in the
Court of Appeals. With its answer, Riverfront stated its reliance
on Ms. Zaiter’s demand for a jury. At no time has Riverfront ever
said or done anything to waive its right to a jury. Wood
teaches that Riverfront’s default does not constitute such a
waiver. 413 Mich 583. Thus, we know that it had the right to
trial by jury on damages if a hearing were held, as did occur in
this case. MCR 2.603(B)(3)(b).

All that remains is Riverfront’s failure to
participate in the default judgment hearing. In light of the
court rule, the analysis offered in Wood, and the
circumstances of this case, we are satisfied that Riverfront’s
failure to appear for the default judgment hearing did not
constitute a waiver of its right to a jury trial. The failure to
appear was simply another element of the continuing problem that
gave rise to the present dispute. Whatever reasons caused the
default also caused defense counsel not to appear for the default
judgment hearing.

As the Court of Appeals noted, Riverfront did
not raise this issue in its motion to set aside the default
judgment. Rather, this question was first raised in Riverfront’s
motion for reconsideration of the court’s order denying the
motion to set aside the default judgment. While that presentation
may appear to be tardy, the constitutional nature of the right to
trial by jury—-a right never waived by Riverfront—-compels us
to grant partial relief in the circumstances of this case. The
principles elaborated in Wood are the basis of this
result.

IV

For the reasons stated in this opinion, we
affirm in part and reverse in part the judgments of the circuit
court and the Court of Appeals. We remand this case to the
circuit court for a hearing before a jury on the amount of
damages. MCR 7.302(F)(1).

[1] Ms. Zaiter also sued Virgil D. Riley, the sole
shareholder of Riverfront. For the balance of this opinion, we
will refer to the two defendants as "Riverfront."

[2]Because of the delay in entry,
the July 15 order did require the impossible—-answers by July
11. This obvious error was of little significance, since
Riverfront continued not to comply with the discovery requests
that had been made the previous October.

[3]The judgment was against
Riverfront and Mr. Riley, jointly and severally.

[4]The record does not indicate that
defense counsel has ever tendered a copy of the answers, or a
copy of the proof of service showing the erroneous mailing.

[5]The dissenting judge in the Court
of Appeals pointed out that it is four months, not five, from May
9 (the fax that defense counsel acknowledges having received) to
September 8 (the hearing on the motion to enter default
judgment). That error plainly is not the foundation of the
circuit court’s opinion.

[6]MCR 2.119(F)(3) states the
standard for deciding a circuit court motion for rehearing or
reconsideration:

Generally, and without restricting the
discretion of the court, a motion for rehearing or
reconsideration which merely presents the same issues
ruled on by the court, either expressly or by reasonable
implication, will not be granted. The moving party must
demonstrate a palpable error by which the court and the
parties have been misled and show that a different
disposition of the motion must result from correction of
the error.

[9]It is important that the
"good cause" and "meritorious defense"
elements of a motion to set aside be considered separately. Alken-Ziegler,
461 Mich 229-234. There being no good cause in this case, we do
not reach the question of meritorious defense.